For overseas businesses that want to operate in Australia they firstly need to determine under what structure they want to operate in. This decision will impact on what tax they pay, where they pay it (ie. in Australia and or in their home country) and when.
So what are the choices?
There are two main structures that a foreign organisation can choose between: establishing a foreign branch in Australia or via an Australian subsidiary company.
Foreign Branch
A branch isn’t a separate legal entity. It must be registered with the Australian Securities and Investments Commission (ASIC) and provide annual reporting to them directly. It also requires that there be an Australian Public Officer and Local Agent which are Australian residents over the age of 18 years.
It will be taxed at 30% on all income and capital gains tax. However, many countries have a double tax treaty agreement with Australia that they won’t be charged double the tax as they need to pay tax in Australia and their home country. In this case the income tax on income would halve.
A foreign branch may also need to collect and claim GST, and will therefore require an Australian Business Number or ABN.
Related: Subsidiary or Branch: Choose the right Business Structure when setting up in Australia
Australian Subsidiary
In contrast a subsidiary is a separate legal entity. They will need to create an Australian company that needs to be incorporated and registered with ASIC. Like the branch they need to provide annual reporting to ASIC but they must also undergo an annual audit which can be costly.
Essentially both branches and subsidiaries are subject to the 30% company tax rate, both must file income tax returns and quarterly GST returns and payments. The major difference is on what is considered assessable income for Australian tax purposes. For branches it includes all Australian source income, where subsidiaries includes all worldwide income, subject to deductions or credits. Repatriation of funds and withholding tax can be complex.
We recommend speaking to one of our International specialists who can advise you on taxation and commercial considerations for choosing the right structure.
Related: Duties of Directors: Does my company require a Company Secretary?